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Study: Proposed change to Texas power pricing could hurt wind sector

If implemented, the proposal would require wholesale power prices to reflect the small amount of electricity lost during transmission through heat or other factors, which would essentially raise the cost of sending power from remote generation plants — such as wind farms — to cities. Transmission losses currently are omitted from prices.

A proposal to make it more expensive to transmit electricity over long distances in Texas would benefit natural gas and coal plants near Houston but could hurt many other power generators around the state — with the burgeoning wind-energy sector likely to take the biggest hit, according to a new study.

Net revenue for power generators overall would fall by about $239 million annually, the report said, with more than $150 million — or 63 percent — coming from the wind sector.

The study was sponsored by First Solar Inc., Vistra Energy and the Wind Coalition, a trade group.

The potential change in how wholesale electricity transmission is priced “would introduce a significant new challenge to the financial viability of existing generation in West and North Texas” in particular, it said.

The study comes on the heels of a previous study sponsored by NRG and Calpine Corp. — both of which have significant generation capacity near Houston — that recommended the change to how wholesale electricity prices are established by the Electric Reliability Council of Texas, commonly known as ERCOT.

If implemented, the proposal would require wholesale power prices to reflect the small amount of electricity lost during transmission through heat or other factors, which would essentially raise the cost of sending power from remote generation plants — such as wind farms — to cities. Transmission losses currently are omitted from prices.

The Texas Public Utility Commission, which oversees ERCOT, has been holding work sessions over the recommendation, as well as others outlined in the study sponsored by NRG and Calpine, although the commission isn’t considering any formal rule changes yet. The most recent work session took place Friday.

The debate comes at a time when low natural gas prices and the rise of renewable energy have severely depressed wholesale electricity prices and put a financial strain on generators, particularly older and more expensive coal-fired and nuclear plants.

On Friday, Vistra Energy subsidiary Luminant announced it will close two Central Texas coal plants — its Sandow plant in Milam County and its Big Brown plant in Freestone County — calling them “economically challenged in the competitive ERCOT market.” Last week, Luminant also announced that it planned to close its Monticello coal plant in East Texas.

Amanda Frazier, Vistra’s vice president for regulatory policy, said Friday that the NRG and Calpine proposal to change transmission pricing has the potential to put a further strain on the economics of the sector by hurting power plants that aren’t nearby large population centers.

According to the study that Vistra helped sponsor, the transmission pricing proposal would reduce system-wide power production costs by $8.6 million a year, or 0.13 percent. Meanwhile, it said, the estimated $239 million drop in combined net revenue to generators equates to a decline of about 7.5 percent.

While the wind sector would suffer the most, according to the study, net revenue for coal plants that aren’t located near Houston would fall by a combined $45 million annually, while net revenue for combined-cycle natural gas plants not located near Houston would fall by about $36 million annually.

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